EC Global Economies Face Continued Challenges

Despite last month’s minuscule rate hike by the Fed, investors and bankers alike continue to question both U.S. growth as well as economic expansion across the globe. Economists see the current situation as totally flat and going nowhere—not strong enough to move forward with confidence and not weak enough to call for easing from central banks. They point to the rush away from stocks as an indication that investors are uncertain over economic conditions and prefer to pull out of the equity markets and play a wait and see game before jumping back in.

According to Bank of America Merrill Lynch, global equity funds surrendered a net $12.2 billion in outflows last week, the highest level of redemptions in five months and the seventh consecutive week of net outflows. The numbers are surprising as they came amid a market that is up nearly 6 percent from at least a near-term intraday low hit Feb. 11, as measured by the S&P 500.

DESPITE LAST MONTH’S MINISCULE RATE HIKE BY THE FED, INVESTORS AND BANKERS ALIKE CONTINUE TO QUESTION BOTH U.S. GROWTH AS WELL AS ECONOMIC EXPANSION ACROSS THE GLOBE

The U.S. economy appears confused. While consumers continue to spend freely and the jobs seem to be plentiful, there are other factors that are not performing as well such as manufacturing, exports and business investment.

Central Bankers Challenged

Central bankers are currently faced with several challenges. The most obvious one is globalization which seems to have slowed down to a trickle and this has a resulted in emerging markets taking a direct hit. Up till now, vigorous growth in developing markets helped generate an emerging middle class in these countries, which acted as a meaningful catalyst for global growth. But this will be difficult to keep up if the free movement of goods, capital and labor continues to suffer.

Another challenge facing central banks is the over extension of leverage. The world is mired in excessive debt and public-sector debt has been replaced with high levels of public, corporate and household debt across most of the world. Recent events in Chinese markets magnify concerns that excessive leverage could lead to another wave of global financial instability.